China's ruling party is not afraid of the middle class

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Xi Jinping's new governing vision, the Four Comprehensives, has been unveiled: to build a moderately prosperous society, deepen reform, rule by law, and enforce party discipline (all done 'comprehensively'). With its clunky name and unsurprising agenda, this new 'political theory' has been relentlessly paraded by mainstream media. More intriguing is the focus given by editors, reflecting Xi's deeper message: the middle class loves the Chinese Communist Party and will never confront it. The urban elite, a 'vital rational voice', is 'critical to maintaining social stability.' Building a middle class society 'would only support the legitimacy of the Chinese ruling party.'

Who is China's 'middle class'? Understanding this is a question with deep political significance, for example with respect to housing. It is also a priority for marketeers, eagerly following the habits and attitudes of China's consumer economy. So it's useful to look at some findings from surveys of wealth, income and spending. Like many societies, China is a pyramid. The top 1% are truly rich, as I will discuss briefly here. It's the next 10-20% who most accurately can be depicted as China's middle class.

By contrast, the middle-class is anonymous. Property is their main source of wealth. According to a survey by researchers at China's Southwestern University of Finance, the top 1% of Chinese families hold $1.6 million in assets, but even the average urban family's net worth is $368,000, mostly in housing and usually unencumbered by mortgages. Properties often are owned through relatives or disguised holding companies and a national policy of rates taxes is still some way off, so wealthy middle-class households can own dozens of apartments without attracting attention. The obscurity is deliberate; it facilitates tax avoidance and an understandable desire to keep a low profile. Public credit records are only now being established.

Based on income measures, various surveys reveal that China's middle is already substantial. McKinsey estimates that two-thirds of all urban households (which may have more than one earner) are already in this category, up from just 4% in 2000. 'By 2022 more than 75 percent of China's urban households will earn $9,000 to $34,000 a year...in average PPP terms, between Brazil and Italy.' Other forecasters, like BCG, Monitor and Merrill Lynch, also estimate that 'mass affluent class' (MAC) households – those with at least US$10,000 in disposable income – will rise from 150 million to 400 million in the next ten years. That would encompass a majority of China's population, and certainly most urbanites. Still, these numbers are just projections, and probably sketchy ones at that. Most Chinese urban households wouldn't see themselves as affluent: 'the country has changed so fast that few feel secure with their status.'

But there is one reliable indicator of the financial position of households: consumption. Wealth or income not disclosed officially can be revealed by how it is spent. Detailed surveys of spending, based on interviews with retailers, car dealers and property agents for example, give us a better idea of who is spending how much. The assembled montage outlines the pyramid. Below the top 1% is an urban middle class of 150 million workers (20% of the total workforce), plus their dependents, totaling one-quarter of China's population but accounting for 40% of total consumer expenditures. Of these 150 million 'white collar' workers, it is thought that 70 million are either government personnel or managers who are on (or near) the payroll of state-owned companies.

That number is significant. The Communist Party's own membership is 85 million. So even allowing for a significant presence of rural cadres, 'the base' of the Party must nestle in the comfortable urban homes and jobs of the modern official Chinese nation. Their daily concerns are a world apart from their rural counterparts. Their children enjoy studying abroad but blithely return more committed to the status quo. Whether or not the Party's legitimacy rests on economic growth, its members certainly have skin in the game.

As China slows into the murk, Premier Li emphasises a higher purpose: 'to strengthen the bonds of attachment and affection of all Chinese, whether at home or overseas, to the fatherland.' Appeals to nationalism aren't inconsistent with other authoritarian, state-capitalist countries. Comparisons with Russia may be provocative, since China has a far more vibrant private economy. But a recent article on Putin's Russia states that 'more than 40% of the new middle class works for the state, and therefore they are not independent people. The regime's social base, in other words, is itself.'